ACIT, Cir.-1, Aurangabad V. Deogiri Nagari Sah. Bank Ltd., Aurangabad

ITA 817/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9949 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Bad and doubtful debts

Judgement Text

N THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 817 & 1114/PN/2 011 (ASSTT. YEAR :2007-08 & 200 8-09 ) THE ASSTT. COMMISSIONER OF INCOME TAX, APPELLANT CIRCLE -1, AURANGABAD JEEVAN SUMAN, LIC BLDG., 2 ND FLOOR, CANNOUGHT PLACE, N-5, CIDCO, AURANGABAD V. DEOGIRI NAGARI SAHAKARI BANK LTD., RESPONDENT ARTH COMPLEX, ADALAT ROAD, AURANGABAD PAN: AAAAD0527A APPELLANT BY : MS.ANN KAPTHUAMA RESPONDENT BY : MS. DE EPA KHARE DATE OF HEARING : 26/9/ 2012 DATE OF PRONOUNCEMENT : - 9-1 2 O R D E R PER R.S. PADVEKAR, JM THESE TWO APPEALS ARE DIRECTED AGAINST THE ORDERS OF THE LD CIT(A), AURANGABAD FOR THE A.YS. 2007-08 AND 2008-09 DATED 11/03/2011 AND 30/06/2011 RESPECTIVELY. 2. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GR OUND WHICH IS COMMON IN BOTH THE APPEALS : 1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE CIT(A) IS CORRECT IN DECIDING THAT ASSESSEE CAN OFFER HIS INT EREST RECEIVED FROM BAD AND DOUBTFUL DEBTS (NPA) ON ACTUAL BASIS AS PER RBI GUIDELINES EVEN THOUGH ASSESSEE IS FOLLOWING MERCANTILE SYSTEMS OF ACCOUNTING. IN SPITE OF THAT, PROVISION OF SECTION 43D IS NOT APPLICABLE TO THE ASSESSEE. 3. THE FACTS REVEAL FROM THE RECORD ARE AS UNDER. THE ASSESSEE IS A CO-OPERATIVE BANK CARRYING ON THE BUSINESS OF BANKI NG. THE PROVISIONS OF THE BANKING REGULATION ACT, 1949 ARE APPLICABLE TO THE ASSESSEE BANK. SO FAR AS THE ISSUE BEFORE US IS CONCERNED, IT WAS NOTICED BY THE A.O THAT THE ASSESSEE HAS NOT RECOGNIZED THE INCOME IN RESPE CT OF BAD AND 2 ITA NOS. 817 & 1114/PN/2011 DEOGIRI NAGARI SAHAKARI BANK LTD. A.Y. 2007-08 & 2008-09 DOUBTFUL ASSETS. IN THE OPINION OF THE A.O, A CO-O PERATIVE AND A NON- SCHEDULED BANK HAS TO RECOGNIZE THE INTEREST AS THE INCOME ON ASSETS CLASSIFIED AS BAD AND DOUBTFUL UNDER THE RBI GUIDEL INES, ON ACCRUAL BASIS. THE A.O HAS OBSERVED THAT THE ASSESSEE HAS BEEN CON SISTENTLY FOLLOWING THE METHOD OF ACCOUNTING BY RECOGNIZING INTEREST I NCOME AT THE TIME OF CREDIT ON ACTUAL RECEIPT. THE A.O REFERRED TO SEC. 43D AND OBSERVED THAT THE SAID PROVISION DOES NOT ALLOW THE OPTION TO NON SCHEDULED BANK OR A CO-OPERATIVE BANK TO RECOGNIZE THE INCOME ON THE A SSETS CLASSIFIED AS PER THE RBI GUIDELINES ON ITS CREDIT OR ON THE ACTU AL RECEIPT. IN THE OPINION OF THE A.O, IT IS MANDATORY ON THE PART OF CO-OPERATIVE BANK TO ACCOUNT FOR THE INCOME OF INTEREST ON BAD AND DOUBT FUL ASSETS IN THE YEAR IN WHICH IT IS ACCRUED UNLESS SUCH ASSETS ARE WRITT EN OFF IN THE BOOKS OF ACCOUNT. HE, THEREFORE, MADE ADDITIONS OF RS. 1,07 ,22,346/- IN THE A.Y. 2007-08 AND RS.4,06,81,251/- IN THE A.Y. 2008-09. IT IS SEEN THAT IN THE A.Y. 2008-09, THE ACTUAL AMOUNT WORKED OUT BY THE A .O TOWARDS THE ACCRUAL OF THE INTEREST ON THE BAD AND DOUBTFUL ASS ETS WAS TO THE EXTENT OF RS.5,14,63,010/- BUT, AS THE ASSESSEE HAS RECEIV ED INTEREST ON THE NPA TO THE EXTENT OF RS.1,07,81,761/- AND THE SAID INTE REST HAS BEEN CHARGED TO TAX, HENCE, TO THAT EXTENT, THE AMOUNT WAS REDUC ED AND THE NET AMOUNT TO THE EXTENT OF RS.4,06,81,251/- WAS ADDED TO THE INCOME OF THE ASSESSEE BANK. THE ASSESSEE CHALLENGED THE ADD ITION BEFORE THE LD CIT(A) AND FOUND SUCCESS AS THE ADDITIONS WERE DELE TED. NOW, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . IN BOTH THE A.YS., THE ASSESSEE HAS NOT CREDITED ANY AMOUNT TO THE EXTENT OF THE ADDITIONS MADE BY THE A.O. TO THE PROFIT & LOSS A/ C. IN THE A.Y. 2008- 09, THE INTEREST RECEIVED ON THE NPA TO THE EXTENT OF RS.1,07,81,761/- HAS BEEN CREDITED BY THE ASSESSEE TO THE PROFIT & LOSS A/C. AND ALSO INCLUDED IN THE NET PROFITS OF THE ASSESSEE BANK. WE FIND THAT THIS ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE B Y THE DECISION OF THE ITAT,A BENCH, PUNE, IN THE CASE OF CIT, CIR 3, NA NDED VS. OSMANABAD JANTA SAHAKARI BANK LTD., ITA NO. 795/PN/2011, ORDE R DATED 31.8.2012. THE OPERATIVE PART OF THE TRIBUNAL ORDER IS AS UNDE R : 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES A ND PERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS B EEN CONSIDERED BY THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF DCIT, VIJAYAWADA VS. THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWA DA, IN 3 ITA NOS. 817 & 1114/PN/2011 DEOGIRI NAGARI SAHAKARI BANK LTD. A.Y. 2007-08 & 2008-09 ITA.NO.511/VIZAG/2010 DATED 10.03.2011. IN THE SAI D CASE ALSO, IT WAS NOTICED BY THE ASSESSING OFFICER THAT ASSESSEE DID NOT INCLUDE THE INTEREST OF RS.18,26,306/- ON THE NPA ADVANCES. AGAIN THE ISSUE OF APPLICABILITY OF SECTION 43D WAS CONSIDERE D TO THE NON- SCHEDULED BANKS. THE TRIBUNAL PLACED ITS HEAVY REL IANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 (DEL.)], IN WHICH THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HELD THAT THE INTEREST INCOME RELATABLE TO NPA ADVANCES DID N OT ACCRUE TO THE ASSESSEE. 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT, AH MEDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD . VS. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVAT I COOPERATIVE BANK LTD. (SUPRA), THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SECTION 43D AND ITS APPLICATION TO THE NON-SCHEDULE D BANKS. THE REASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAV ATI COOPERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STICKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY F OLLOWING THE DECISION IN THE CASE OF UCO BANK (SUPRA), WHICH IS AS UNDER: 15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRS T OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTA L PRINCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE S YSTEM OF ACCOUNTANCY IS THAT AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETHER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTR ARY TO THIS RECOGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED T HAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE P REVIOUS YEAR IN WHICH IT IS CREDITED. THE WORDS CREDITED AND ACT UALLY RECEIVED HAS BEEN HIGHLIGHTED HEREINABOVE WHILE REPRODUCING THE SECTION IN QUESTION. THE OTHER DEVIATION FROM THE SAID ACCEPTE D PRINCIPLE OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SH ALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF CREDI T OR ACTUALLY RECEIVED, WHICHEVER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CHARGEABILITY OF INCOME BY WAY OF INTERE ST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE OPENING WORD IS NOTWITHSTANDIN G ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF T HIS ACT. THEREFORE, IN SPITE OF ANYTHING CONTAINED IN THE AC T, THE PROVISIONS OF THIS SECTION SHALL OVERRIDE THOSE PROVISIONS. ON CE THE STATUTE HAS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINAN CIAL INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EITHER IN THE YE AR IN WHICH CREDITED OR ACTUALLY RECEIVED, WHICHEVER IS EARLIER , THEN IT IS COMPULSORY TO ABIDE BY THE SAID RULE. ACCORDING TO US, NO SCOPE IS LEFT WITH THE REVENUE AUTHORITIES TO IGNORE THESE P ROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICAT ION SECTION 43-D. 4 ITA NOS. 817 & 1114/PN/2011 DEOGIRI NAGARI SAHAKARI BANK LTD. A.Y. 2007-08 & 2008-09 AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A CO-O PERATIVE BANK. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W.S. 36(1)(VIIA) ANNEXED TO SECTION 43-D THE DEFINITION OF THE ENTITIES INCORPORATED BY THE SECTION HAVE BEEN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL , WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENT ITIES, HENCE THE PROVISIONS OF SECTION 43-D ARE TO BE APPLIED. (III) APPLICABILITY OF CBDT CIRCULAR. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING RIGOUR OF LAW CAN BE TREATED AS INCONSISTENT WITH THE PROV ISIONS OF A STATUTE. IN ORDER TO AID PROPER DETERMINATION OF TH E INCOME OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIREC T TAXES HAS ISSUED A CIRCULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHERE INTEREST ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEES TAXA BLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT R ECOVERY IS PRACTICALLY IMPROBABLE. THE CBDT U/S.119 OF THE I.T .ACT HAS POWER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTORY POW ERS. IF THE BOARD CONSIDER IT NECESSARY TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUI RED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMEN T UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE B OARD HAS POWERS TO RELAX THE SEVERITY OR THE STRICTNESS OF LAW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE INSTRUCTIONS AS HELD IN TH E CASE OF C.B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CT R 179 (SC); NAVNITLAL C.ZAVERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COUR T IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC) HAS THE REFORE HELD, FIRST, THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREA TED AS INCONSISTENT WITH THE PROVISIONS OF STATUTE AND BINDING ON THE A UTHORITIES. SECOND, THAT IN RESPECT OF INTEREST ON STICKY ADVA NCES INTEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED A S PRESCRIBED BY CBDT CIRCULAR. HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HONBLE KERALA HIGH COURT IN THE CASE OF STATE BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (KER.), WHEREIN IT WAS HELD THAT THE ASSESSEE, A BANKING COMPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON STICKY ADVANCES BECA USE THE ASSESSEE FELT THAT THE INTEREST COULD NOT TO BE REA LISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTERE ST SUSPENSE ACCOUNT. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WAS AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE A SSESSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INTEREST INCOME ON S UCH STICK ADVANCES IT ITS ACCOUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COURT WHILE PRONOUNCING THE JUDGMENT OF THE SAID ST ATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC ), THERE WERE HON'BLE THREE JUDGES PRESIDING THE COURT, OUT OF WH ICH HONBLE TWO JUDGES WERE IN THE OPINION THAT THE INTEREST ON ST ICKY ADVANCES WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLANT. 5 ITA NOS. 817 & 1114/PN/2011 DEOGIRI NAGARI SAHAKARI BANK LTD. A.Y. 2007-08 & 2008-09 THERE WAS A DESCENDING NOTE BY ONE OF THE HON'BLE J UDGE AND COMMENTED THAT WHETHER AN INCOME ON RECEIPT BASIS O R ON ACCRUAL BASIS, IT IS THE REAL INCOME AND NOT ANY HYPOTHETIC AL INCOME WHICH MAY HAVE THEORETICALLY ACCRUED, I.E. SUBJECT TO TAX UNDER THE ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE APPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUD GES OF THE SUPREME COURT, ALREADY DISCUSSED BY US SUPRA. WE, T HEREFORE SUMMARIZE THAT AS OF NOW THE LAW AS LAID DOWN IN UC O BANK IS THAT IN TERMS OF CBDT CIRCULAR THE INTEREST IS TO BE ADD ED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED IN RESPECT OF TH E STICKY ADVANCES WHILE MAKING ASSESSMENT FOR A FINANCIAL I NSTITUTION. (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE : WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF SECTI ON 43-D OF THE I.T.ACT AND EXPRESSED AN OPINION THAT IF THE STATUT E HAS USED THE TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON TH E BASIS WHEN CREDITED OR ACTUALLY RECEIVED, THEN IN OUR OPIN ION NO AMBIGUITY HAS BEEN LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS L EGAL PROPOSITION WE PLACE RELIANCE ON KESHAVJI RAVJI AND COMPANY VS. CIT 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UNDER: AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLA TIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF TH E LEGISLATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTO RY LANGUAGE WHICH IS OTHER-WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETAT ION ARISES WHEN THE WORDS USED IN THE STATUTE ARE, ON THEIR OWN TER MS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATUR E. WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BE CAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COURTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN USED IN SUBSE QUENT LEGISLATION IN THE SAME OR SIMILAR CONTEXT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO-CA LLED EQUITABLE CONSTRUCTION OF A TAXING STATUTE IS NOT TO SAY THA T, WHERE A STRICT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PE RMISSIBLE IN THE CONTEXT, SHOULD NOT BE ADOPTED. IN THIS RESPECT, TA XING STATUTES ARE NOT DIFFERENT FROM OTHER STATUTES. WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY T HE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST INCOME IN THE CAS E OF PUBLIC FINANCIAL INSTITUTION, ETC. SECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS PERTINENT TO MENTION THAT LATER O N, IN THE CASE OF CIT VS. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE QUES TION OF INTEREST ON STICKY LOANS WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE QUESTION IS TO BE ANSWERED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 6 ITA NOS. 817 & 1114/PN/2011 DEOGIRI NAGARI SAHAKARI BANK LTD. A.Y. 2007-08 & 2008-09 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHER CASE OF C IT VS. STATE BANK OF INDIA 262 ITR 662 (BOM.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST SUSPENSE ACCOUNT WA S NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UC O BANK (SUPRA). (V) JUDGEMENT IN FAVOUR OF REVENUE : FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUN AL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC REASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CON TROVERSY. IN THE SAID DECISION OF THE TRIBUNAL, VIZ. JT.CIT V/S. INDIA EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI), THE RESPEC TED CO- ORDINATE BENCH HAS EXPRESSED THAT QUOTE PRIOR TO INSERTION OF SECTION 43D WITH EFFECT FROM 1-4-1991, RECOGNITION OF INCOME WAS ON THE BASIS OF CIRCULAR OF 9-101984. IT SAID THAT FOR FIRST THREE YEARS THE INCOME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WA S TO BE RECOGNIZED ON RECEIPT BASIS. SINCE THE INCOME WAS T O BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO.621, DATED 19 -12-1991 GIVES THE LEGISLATIVE INTENTION STATING THAT SECTION 43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY OF BANKS, PUBLIC FI NANCIAL INSTITUTIONS ETC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOAN S SHALL BE CHARGED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS AC TUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEF IT WAS EXTENDED WITH EFFECT FROM 1-4-2000 IN THE CASE OF PUBLIC COM PANIES ENGAGED IN LONG-TERM FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS. THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE SAME BENEFIT TO NBFCS WHICH HAS BEEN GIVEN TO SCHED ULED BANKS, PUBLIC FINANCIAL INSTITUTIONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD O R DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES I SSUED BY THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CON TINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLICABLE WITH E FFECT FROM 1-4- 2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PURPOSE S OF INCOME-TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9-10-1984. BECAUSE OF THIS REASON, SECTION 43DWAS I NSERTED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF CONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTE REST AND VIABILITY OF THE NBFC. THE GUIDELINES NEVER INTENDED FOR TAKI NG THE INTEREST INCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE ACT. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUN T TO INSERTION OF 'NBFC' IN SECTION 43D, THAT TOO BY A GUIDELINE I SSUED FOR DIFFERENT PURPOSES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WORDS, THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE B EEN APPLIED WHICH IS CONTRARY TO LAW OF LAND.UNQUOTE. THE BASI C REASON FOR DIRECTING TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSUED ONLY FOR SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERVATION OF T HE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTION OF THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOUNT TO INSERTION OF NBF C IN SECTION 43-D OF THE I.T.ACT. AS AGAINST THAT, AS FAR AS THE ASSESSEE IS CONCERNED, IT IS AN ACCEPTED FACT THAT THE ASSESSEE IS A COOPERATIVE BANK AND NOT A NON-BANKING FINANCIAL COMPANY AND TH IS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN O NE OF THE PARAGRAPHS ABOVE. 7 ITA NOS. 817 & 1114/PN/2011 DEOGIRI NAGARI SAHAKARI BANK LTD. A.Y. 2007-08 & 2008-09 THERE IS ONE MORE DECISION OF THE HONBLE APEX COUR T WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMENTS RAIS ED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUT HERN TECHNOLOGIES LTD. VS. JT. CIT 320 ITR 577 (SC) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HONBLE COURT WAS IN RESPECT OF PROVISION FOR NPA AND DEBIT ED TO P&L ACCOUNT BY A NBFC. THE SAID PROVISION WAS UNDISPUTE DLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY T HE RESERVE BANK. THEREFORE WE WANT TO MAKE IT CLEAR THAT THE Q UESTION FOR CONSIDERATION BEFORE THE HONBLE COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL P OSITION OF THE APPLICABILITY OF EXPLANATION TO SECTION 36(1)(VII) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FRO M THE HELD PORTION IS REPRODUCED BELOW: THE INCOME-TAX IS A TAX ON REAL INCOME, I.E., T HE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIO NS OF THE ACT. THEREFORE, IF BY THE EXPLANATION TO SECTION 36(1)(V II) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANAT ION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING W HICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-P ERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RE SERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT IN THE COMPUTATION OF TOTAL INCOME UNDER THE INCOME-TAX ACT. THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTEREST INCOM E ON STICKY LOAN BUT IN THIS CITED DECISION THE QUESTION BEFORE HE A PEX COURT WAS ABOUT THE ADMISSIBILITY OF PROVISION MADE IN RESPEC T OF DOUBTFUL DEBTS. ( VI ) CONCEPT OF REAL INCOME APPROVED IN THE CASE OF BANKING BUSINESS: BEFORE US, THE THEORY OF REAL INCOME HAS ALSO BEE N ARGUED AND IN SUPPORT A DECISION OF HON'BLE COURT PRONOUNCED IN T HE CASE OF CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC). IN SHO RT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL , THERE CANNOT BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABOUT A HYPOTHETICAL INCOME BY FOLLOWING BOOK KEEPING METHODS, THE LIABILITY TO TAX CANNOT BE ATTRACTED. NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD. 293 ITR 35 7 (MAD.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF LEASE, FINANCE AND HIRE PURCHASE AND TH AT THE PRINCIPLE OF ACCRUAL COMES INTO PLAY WITHOUT INCOME WAS RECOG NIZED AND THAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I. AND FOUND THAT CERTAIN ASSETS CAME UNDER THE CATEGORY OF NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSONANCE WITH THE NOTIFI CATION ISSUED 8 ITA NOS. 817 & 1114/PN/2011 DEOGIRI NAGARI SAHAKARI BANK LTD. A.Y. 2007-08 & 2008-09 BY RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSE E WAS JUSTIFIED IN NOT RECOGNIZING SUCH INCOME. THE COURT HAD FURTH ER EXPRESSED THAT THERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD ARISE OR NOT, NEVERTHELESS, THE INTER EST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YE AR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THA T FOR THIS DECISION, THE HON'BLE MADRAS HIGH COURT HAS RELIED UPON AN AN OTHER DECISION OF THE SAME HIGH COURT PRONOUNCED IN THE CASE OF JT .CIT VS. INDIA EQUIPMENT LEASING LTD. 293 ITR 350. 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS N OT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENC HES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWAD A (SUPRA) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FIND N O REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUE S GROUND IS DISMISSED. 5. AS THE FACTS ARE IDENTICAL IN THIS CASE, WE THE REFORE, FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF OSMANABAD J ANTA SAHAKARI BANK LTD. (SUPRA), DISMISS THE GROUNDS TAKEN BY THE REVE NUE. 6. IN THE RESULT, REVENUES BOTH APPEALS ARE DISMIS SED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28TH S EPTEMBER 2012 . SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (R.S.PADVEKAR ) JUDICIAL MEMBER PUNE, DATED THE 28TH SEPTEMBER, 2012 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT, AURANGABAD 4. THE CIT(A), AURANAGABAD 9 ITA NOS. 817 & 1114/PN/2011 DEOGIRI NAGARI SAHAKARI BANK LTD. A.Y. 2007-08 & 2008-09 5. THE D.R. A BENCH, PUNE 6. GUARD FILE /- TRUE COPY-/ BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE